Great blog posts about macroeconomics

Why is Spain’s Unemployment Rate so High?

This week, first quarter economic results for Spain were released by the Bank of Spain, announcing that in Q1, GDP was estimated to have grown 0.4%, the fastest growth rate in the last 6 years. However, the report also shows that unemployment in Spain remains high at 25.9%, the second highest unemployment rate in the EU behind Greece, with youth unemployment at 53.6%. While GDP growth gives reason to be optimistic for Spain’s recovery from the recession, it remains clear that unemployment rates in Spain are a problem. There are many reasons why high unemployment continues in Spain, but in my opinion there are three big issues exacerbating Spain’s high rates of unemployment that are yet to be seriously addressed.

The first issue is that the autonomous communities within Spain have notably different unemployment rates. This is partially due to different levels of output in each autonomous community, which in the case of modern Spain has been generally trending with unemployment in accordance with Okun’s Law. Regional unemployment is very high in some autonomous communities- the 5 highest regional unemployment rates in the EU are from regions within Spain, with Andalucía’s unemployment rate leading the pack at 36.3%. The EU’s highest youth unemployment rate can also be found in Spain in Ceuta at 72.7%. In slight contrast, regional unemployment is relatively low in other autonomous communities such as in Cataluña, where unemployment is lower than the Spanish average at 22.1%, arguably one of the reasons Cataluña is now petitioning to secede from Spain. Output in many of these autonomous communities relies on tourism and exports, meaning that in order to emerge from the recession, these communities will need to wait for other countries to emerge from the recession first or find new ways of generating output and new jobs.

The second two issues are cultural. Microeconomic theory tells us that the operating costs of keeping a store open can be low enough to justify keeping a store open during times of day when there might not be many customers, yet many stores throughout Spain continue to participate in a long, economy killing, daily siesta in addition to closing down on Sundays. Macroeconomic theory tells us that consumption can greatly influence GDP and keeping these stores closed during siesta is definitely hurting the Spanish economy. As one article in The New York Times noted earlier this year, the tradition of the siesta in Spain is becoming less and less necessary, and keeping stores open during siesta would generate a lot more revenue to businesses, create more jobs, and boost the economy in general.

Another cultural practice hurting Spain’s economy is the lack of financial independence amongst youth. While in the U.S., secondary school and college graduates are encouraged to fly the nest and gain financial independence, many Spaniards between the ages of 16-24 (the youth unemployment rate age group) live at home and receive financial support from their parents. While this is pure observation on my part, it is clear that living off of one’s parents is considerably more frowned upon in the U.S. (where college tuition is higher and the dole is less progressive) than it is in Spain where many don’t start to seriously look for their first job until after college graduation. While it is clear the recession has affected the ability of young Spaniards to find work, the lack of societal pressure on young Spaniards to get a job could definitely be affecting their demand for jobs (particularly in 16-18 year olds) and how seriously they search for one.

In summary, it is clear that there is a lot more affecting unemployment rates in Spain than the reasons mentioned above, but it will be interesting to see how (and if) these issues might ever make their way into a policy change or shift in preferences. Regardless, changes to Spain’s economy (and culture) as it emerges from the recession will be interesting to watch.

2 thoughts on “Why is Spain’s Unemployment Rate so High?”

I wonder if Spain is measuring unemployment correctly or whether there are big measurement issues with underground/black market workers who actually have jobs but aren’t counted in the official statistics.

This post was interesting to me because it brings up the question of whether or not money is a good proxy for happiness. Spain’s economy certainly hasn’t recovered as well as the United States’. Talking with friends who have studied abroad in Spain, they note that people are generally less stressed and happier. Americans have achieved more economic freedom, but that may not be leading them to lead a happier life.